My last column was all about the culture of Microsoft and how it makes real change difficult for the company. It’s not just at Microsoft that these things happen, by the way: nearly all mature organizations get into similar ruts. And if, like Microsoft, they are spectacularly profitable ruts, well then it isn’t surprising that things stay more or less permanently dysfunctional.
I said last time that a second column would follow with my specific suggestions for restructuring Microsoft, but now that I am really into it I think we might be looking at a total of three columns, not two. But then I’ll be finished with Microsoft for a few months.
Setting out to rebuild Microsoft for the next 30 years it is tempting simply to throw away the parts of the company that don’t make money, which is to say almost everything except Windows, Office, and MAYBE the xBox. Most parts of Microsoft lose money. But those parts that are profitable are SO profitable that they more than make up for all the losers, as I have explained ad nauseum before.
The part of Microsoft that it would initially make sense to dump is easy — everything related to MSN, including MSNBC, the MSN home page, and the many MSN websites. Even though some MSN sites are relatively successful, such as MSN Money, Microsoft should never have gone into the content business and stayed there so long. It’s not Microsoft’s core business, and MSN has cost the company billions of dollars over the years.
But I said it would INITIALLY make sense to dump MSN, not that I still believe that completely. After all, wasn’t it MSN that Microsoft intended to augment by attempting to buy Yahoo for $44 billion? How could Microsoft be so stupid to throw another $44 billion into a toilet that already contained close to $10 billion in cumulative MSN losses over the years? Yet CEO Steve Ballmer seemed very intent on doing just that.
The arguments for dumping MSN are that it never made money and never felt like the rest of Microsoft. The arguments for keeping MSN are that in many ways it is the future of PC technology and Yahoo has shown it is possible to make a pretty good living in the content business. Just because MSN hasn’t made money doesn’t mean MSN COULDN’T have made money if that was an important goal.
One could argue, in fact, that someday the Windows and Office franchises will start to fade so Microsoft needs to learn how to build new and successful lines of business. Yes MSN, so far, has been a failure. It is a management failure and to be successful well into the future, Microsoft needs to fix this problem.
Yet there is big money still to be made online as Google and Yahoo have shown and it is something Microsoft should somehow do. Microsoft needs several new lines of business that can each generate billions in profits. “Online” has the potential to do that. There are big bucks to be made there and Microsoft needs to be in the game.
The problem, though, is that the folks in Redmond don’t know how to build an online business, which is a big reason why they wanted to buy Yahoo. Ballmer suggested, remember, that Yahoo’s DNA, not MSN’s would be perpetuated in the combined online business. This is a nice argument, but who can believe that Microsoft would spend $44 billion and then not take an active and probably destructive role in managing that business? I can’t. Worse still, it can be argued Yahoo has forgotten how to manage an online business, too, for reasons I have written about in the past. But Microsoft was willing to take that risk, or so they said. There was a good foundation for an online business at Yahoo and it could be obtained at a bargain basement price.
Only it wouldn’t work. Microsoft would meddle and screw it up while Yahoo might just as easily self-destruct.
The only answer to optimizing the online operations of both companies, then, would be for YAHOO TO BUY MSN.
This actually makes some sense in a weird way. The only way to keep Microsoft from screwing-up Yahoo is by making Microsoft a minority partner in the operation. The only way to push Yahoo management into being less boneheaded in its own way is by having a demanding minority owner. And you can be sure Ballmer would be demanding.
Let’s put a value of MSN at $10 billion giving the combined companies a worth of $29 billion and Microsoft a 34 percent ownership of Yahoo, perhaps with warrants to buy the rest at some later date under certain conditions.
Yahoo, for all its problems, knows how to make money on the Internet. It could use Hotmail and other parts of MSN to increase economies of scale and become even more successful. Yahoo still wouldn’t defeat Google but it would be a much stronger number two and even number one in certain areas. Because Microsoft couldn’t control Yahoo it couldn’t impose Microsoft culture on it. Because Microsoft was a big enough minority owner, it COULD push Yahoo into being more logical, less emotional, and probably more profitable – something Microsoft could never force MSN to do itself.
And Microsoft, suddenly unburdened by MSN losses would look better to Wall Street, which would appreciate, too, any option to recapture Yahoo at a later date, but only if it made sense then to do so.
Unlike Microsoft buying Yahoo or even Yahoo remaining completely independent as it is now, this plan actually makes some sense, at least to me. But then you know me…
Next column we’ll deal with the rest of Microsoft, chopping those 20,000 to 50,000 heads.
New Kindle?
A few hours from when I’m writing this Amazon will reportedly introduce the second-generation Kindle ebook reader. A lot of money has been lost on ebooks over the years and I have my doubts that the Kindle is yet profitable. Still, if any company can make a go of eBooks it is probably Amazon. As for what’s in the new Kindle I’ll take a chance and guess right here.
It will be thinner, have a better user interface and probably a touch screen of sorts. Also I shot some interviews last year at E-Ink near Boston and got some idea of where that technology, which is used in the Kindle, is headed. Last spring I saw full color video running on an E-Ink display, so I’m guessing that will be a part of the next Kindle, too. But that’s as far as my guessing goes.
Update –The Kindle 2 has now been announced. As predicted it is lighter, thinner, and faster, but it doesn’t have a color screen — 16-level grayscale instead. That color model must be the Kindle 3. –Bob
All Bob All the Time!
Now some news about me. Sometime this spring I will start a weekly online video show in cooperation with the Computer History Museum in Mountain View, California. Think of this as a follow on and an improvement to NerdTV. It will be 52 weeks per year and unlike anything you’ve seen to date on the Internet, even from me.
This spring I will also start writing a blog about the global financial crisis with my friend of 25 years Adam Smith, author of The Money Game, Super Money, Paper Money, etc. and for 14 years the managing editor of Adam Smith’s Money World on PBS. I’m definitely the junior partner in this operation, which will be done as a co-production with a major New York publisher.
My reasons for mentioning these two projects are entirely self-serving: we need sponsors. If we can bring in a launch advertiser for the blog, especially, we can grandfather that arrangement at a lower CPM before the New York guys get a chance to mess with it. So give me a call if you or your company are seriously interested.
The online show should be good. Is the moon shot still progressing?
I don’t think that e-books will take off until full colour is available, I’ll buy one when I can have a page that looks like a real book or magazine with photos and illustrations as well as text. I reckon that will be the tipping point for these devices, as well as the death of traditional publishing.
What I saw a year ago was full-motion, full-color video albeit a little washed-out compared to, say, an iPhone because the display had no backlight. That sounds like what you are looking for.
Bob
Thats it. If it was good enough to replace magazines by including colour pictures and videos then it will change publishing forever.
Kindle does a small subset of what an iPod Touch does and costs more. It is a totally bone-headed product concept.
FWIW: Other products at Microsoft making gobs of money include: SQL, Visual Studio, MSDN, Mobile Devices, Press, Flight Sim, and the whole Mac studio. Outside of MSN and Zune, its hard to find a Microsoft product which loses money.
But do those divisions raise Microsoft’s gross margins or lower them? I believe they generally lower them, which means they are effectively drags on the company compared to Windows and Office, which do the heavy lifting. I’ll cover this all in a couple days.
Bob
Just curious, but by a similar line of reasoning then, shouldn’t Google drop all of its products that don’t make as much profit as AdSense and AdWords do for them?
And if we use the “DNA” argument – if Microsoft doesn’t have the DNA to build a successful online business and thus the whole shebang needs to be discarded, does Google have the DNA to build a successful business to make inroads into the enterprise space (which it is trying to do)? Should
Google give up and discard that too?
There is plenty of fat Google could cut but these companies are at dramatically different phases of their corporate lives.
I am of the belief that, like GE, Microsoft can’t afford to be in businesses where they are not #1 or #2. If they are #3 or below and don’t have an obvious AND BELIEVABLE path to #1 or #2, then I think it is time to move on.
1.)Not that Amazon.com might do this, but they could make a very bold play of sewing up the e-book market (and other online services) with the third generation Kindle – give the damn thing away! The Kindle could be placed in a position where it could compete directly and successfully against Apple, Inc.’s iTouch. Aside from audio book recording sales from ITMS, Apple is feigning disinterest in introducing an e-book feature or app for iTouch or iPhone. Amazon sees the Kindle as nothing more than electronic book reader but it has the capabilities of being much more – very close to being Douglas Adam’s Hitchhikers’ Guide To The Galaxy, so to speak. Both entities are being very cagey of the future capabilities their respective devices. If the interface improves tremendously on the Kindle, Amazon.com could take out the impending dominance of the iTouch by eventually offering it for free, or close to free. Users would sign up for an introductory subscription service that offered unlimited downloads and services.
2.) MSN is such a real drag. Microsoft should spin it off or sell it (or heaven forbid, actually follow Cringely’s advice to a tee, but then they’d have to fork over a consulting fee, not that they can’t afford that).
3.)Good luck with new video venture. Will you be reworking your unaired episodes of season @ of NerdTV?
Amazon seems to have big plans for the Kindle and the fact that people are as excited about a version 2.0 shows they’ve found a good niche. It will be interesting to see how Apple responds.
About the video project, there is an entire unseen season of NerdTV, but that’s not (yet) a part of this project, which is quite different. If this new thing proves sustainable maybe those episodes will eventually air, or maybe not. Only time will tell.
Bob
How can Nerd TV, a year or two old, still be relevant? Just as technology marches on, video opinions have a short shelf live.
I’m glad I found this site. Your writings have been valuable for years.
Cringely definitely has a great take on all the different issues that confront us. I loved the forest fire/financial analogy.
Cringely for the 45th president!!!
I think the Kindle could be a bigger hit than people realize. I have some friends who own version 1, and they absolutely love it. I think a big appeal of this will is the space it will save. I love books, and own hundreds of them. But once you’ve read a book, what do you do with it? My book shelf and apartment are stuffed with books. I can’t bring myself to throw any out, and I’m too lazy to bring them down to a used bookstore to get rid of them. Buying books in electronic format, having them on a reader, just makes sense to me.
– Dave
Guess why Yahoo’s alliance partner Opera went after Microsoft last year? Now Microsoft has a huge competition case with the EU and the competitors as Opera and Mozilla set the stage as the puppets for Google and Yahoo. Microsoft does not understand online and I don’t expect them to succeed with the Cloud. Yahoo should buy them and transform the company.
“…nearly all mature organizations get into similar ruts. And if, like Microsoft, they are spectacularly profitable ruts, well then it isn’t surprising that things stay more or less permanently dysfunctional.”
…lIke every oil company in existence. Which is why the oil companies will never solve global warming or get us out of dependence on foreign oil. Which is why they do not deserve to be subsidized. But the US Government is also large and, in a way, spectacularly profitable…
“The problem, though, is that the folks in Redmond don’t know how to build an online business, which is a big reason why they wanted to buy Yahoo.”
Another problem is that Yahoo owns the patents needed for anybody to build a profitable online business. Which is a big reason Microsoft still wants to buy Yahoo.
It always comes down to incentives, doesn’t it? Oil companies (and Microsoft) don’t have real incentives to change.
Nice column.
Far too often companies focus too much on doing what their competitors do, and they forget how to think independently.
When I visit Yahoo (or MSN) it is not to search for something on the internet. They provide me a number of important services that use daily. When I need to search for something, if they would route my request to Google and bring back the results — I’d be happy. It is all the OTHER stuff that takes me to Yahoo (or MSN). I think they would be well served to improve their other services and worry a little less about search.
A couple years ago I realized something important to this discussion…. I have NEVER purchased anything through Google. I almost bought something from one of their advertisers once. I checked the Better Business Bureau first. That killed that sale.
To be fair I haven’t bought anything from Yahoo (or MSN) either. I am not interested in dating, nor do I need help getting reunited with past classmates. Over time their advertising become so intrusive and such a big load on my internet connection, I started blocking it. Now very little of it gets through. This is another good example of firms simply doing what others are doing and not thinking independently.
If our friends at Yahoo (and MSN) would give some serious thought on what I (their customer) needs and then deliver the right advertisements in the right way — it would probably help their business. Another sign of a company that has become too big and/or too set in their ways is their inability to listen to their customers and the marketplace. Very few firms do internet advertising well. Since that is their big money maker, one would think mastering the internet medium would be a priority.
I like the idea of a merger of MSN and Yahoo into a single company with Microsoft being a part owner. That is a good idea. The other important thing that needs to be done is a refresh in the executive level. They need to bring in a good, very good management team from the outside. They need people who know how to run a business well, how to bring creativity back, and how to get things done efficiently. Mashing the two units together will not create a winner. They need a management team that can and will impress Steve Ballmer, and the stock holders!
I will disagree with Mr. Cringely on one thing. It is okay for a firm to have a number of smaller lines of business, and are not #1 or #2 in their market. They key is to make sure EVERY line of business is profitable and well managed. Ten $100 million a year lines of business will generate $1 billion. Any size of business can make good profits. The trick is to manage each well. If you can’t manage it well it is best to fix your internal management problems first. Bad management is a cancer that bring down other lines of business.
Re, doing web advertising right:
It’s something to note that using adsense leaves it up to Google to decide where to place your ad, you’re trusting its generic intelligence. I just came to know of a firm, hapax.com, that /exposes/ Google-like analysis of the content / attitude (but not just positive / negative, also, are they asking questions, giving answers, whatever) toward the many things mentioned on webpages, for individual companies’ brand protection and whatever creativity they want to apply to their own ad placement. I suppose Google could expose their own ‘guts’ as it were but, anyway, it could be a new breeze in the area.
“a blog about the global financial crisis…”
What fresh Hell is this, take 2? (The use of that phrase on the mortgage blog just cracked me up, and so it immediately came to mind here.)
These last two Microsoft columns have been great. By all means go for a trifecta.
Bob,
If you’re advocating that Microsoft should make decisions based on which divisions are profitable and which are not, then I’m wondering where this leaves Microsoft Research. On the face of it, Microsoft’s research division is not profitable and employs a significant number of smart people. A lot of what they do is pure research and not necessarily related to any particular product line, but one could still make that argument that their academic output is important in maintaining Microsoft’s role as a technology leader.
In fact, it seems like Microsoft, along with a few other old-guard tech companies like IBM, is one of the few corporate entities left that do pure computing research. Contrast this with Google, where almost all of their research has a direct correlation with one of their products (and is almost all proprietary). If you don’t believe this, compare the number of journal articles and conference papers generated by Microsoft and Google.
So I guess what I’m wondering is… to what extent will restructuring Microsoft along profitability lines affect their research efforts and, by extension, their technology leadership.
Basic R&D is *always* a loss. From a strict profitability point of view, R&D doesn’t make money, so it should be spun off. That leaves you with two problems: The first, who would buy it? If my premise holds, that R&D is always a loss, there is no market for it. The second, which is more important, is where does your next product come from? Let me expand upon this second a bit.
Microsoft is productizing a technology that has been around for a while. This technology is functional programming and is represented by such languages as scheme, ml, and Haskell. What makes this technology so valuable, now, is the multi-core processing world. A program written in a functional language has immutable types. This means that the programs parallelize better. The technology is easier to leverage to take advantage multi-core processors. This technology (a language called F#) attempts to blend the best of the functional with the best of the object oriented. The language is already available for download and will be a full part of Microsoft Visual Studio 2010.
This takes me back to R&D. This new product, which has enormous potential, grew directly out of Microsoft R&D. Every profitable technology business, even though it can scarce afford it, has to have an R&D department. R&D is the source of tomorrow’s product and ensures that your company will continue to exist.
Market leaders simply have to engage in basic research, yet American industry has spent most of the last 20+ years trying to forget that. I have written about this quite a bit and it is the greatest danger to American industrial might — greater than anything China can pose. Yet short-timer CEOs are always so busy seeking “efficiencies” that they are likely to efficinecy American industry to death.
It’s simple, really. If you have dominant market share you’re stupid not to put one percent of sales into basic research — NOT R&D — basic research. For Microsoft, with about $60 billion in annual sales, that’s $600 million. Yes, Microsoft’s R&D budget, which includes Microsoft Research, is almost $7 billion. I’m just saying that about 10 percent of that probably goes to basic resaerch and is a good long-term investment for the company.
Bob
Wait! Where’s the Season 2 of NerdTV???
Like the 1100 pound man who never leaves the bedroom, Microsoft can’t change until it loses some weight.
Unless you can leave it in the bathroom for months without the battery going dead or on the restaurant table without worrying about it being stolen when you go the the crapper, or in the trunk of your car in 110 degree summer heat, I would never spend $400, or even $100 for electronics that simulate a paper book, even if it is otherwise perfect. I might as well just get a netbook. Kindle has a LONG way to go.
MSFT has to fight GOOG on its terms because GOOG is making applications that compete with office and giving them away free. If wi-max becomes a reality, then there is no reason to think that the operating system won’t be next. mobile devices will take over from high cost and inefficient laptops.
By straining the cash flows of GOOG by competing effectively in search (purchase of YHOO) MSFT sustains the life of office and the OS for the next decade. The bigger the advances that are made by GOOG and its free apps and services, the closer we get to wi-max.
Buying YHOO will slow GOOG and give MSFT a chance to compete effectively — ie developing an online version of office makes the GOOG apps worthless.
Links of the Week – February 10th…
These are my links for January 30th through February 10th
……
After Microsoft saga is finished RXC, you may want to comment and expand on this. At first blush, one would suspect that almighty Google is indeed Apple’s bitch, when in fact, the two companies BOD are incestuously intertwined.
Re the computer museum:
maybe you can influence them to revamp the display of historical machines? I visited about a year ago and it was depressing. For one thing, it would be nice if the various displays sort of connected to each other, with maybe a timeline or?
and they desperately need an Amdahl machine. Amdahl had a major affect on the way systems were priced and sold.
Have been reading you for decades and always enjoy it.
Cheers from Beijing
Scott Graham
The Computer History Museum has big plans that I am sure include an Amdahl machine. They have many more computers, in fact, than they have space to display them. And the long term plan is to do something much as you describe, though that takes money.
And to be precise, they DO have an Amdahl machine on display — WISC, the Wisconsin Integrally Synchronized Computer, which was the basis for Gene Amdahl’s dissertation at the University of Wisconsin in 1950.
Bob
[…] How do you translate this article into a military context, since we’re all MBA’d and enterprised […]
Why not allow your show to be downloaded on Tivo? CNET does it and so does DLTV and a host of others. I hate watching videos on my PC and I schedule these shows to download so that I can watch them while my wife makes dinner.
Because I’m too busy making dinner at our house, sorry.
It’s a funny thing about TV shows — they cost money to make. I nearly lost my shirt doing the firs season of NerdTV. Someone else nearly lost THEIR shirt doing the second season. And that season won’t appear until we can come up with a way to give those folks back their shirt. Film at 11.
Off Topic:
Bob — How about an update on some things:
1. Moonshot
2. Foil Disk drives
3. Status of your Mortgage Blog — with everything going on, will it continue?
Thanks,
JJ
My Moon shot is moving forward and we’ll probably have an announcement in March
We finally have sample foil drives so some big outfit is going to have to make a decision soon whether to put one in their iPod.
My mortgage blog probably has a month to live. Parts of it will be subsumed into a mortgage startup I’ve been helping and the rest will go to New York for the financial crisis coverage.
I think there’s some good stuff going on with the Kindle and it — or some other e-book reader — could be a viable product line. But I don’t think e-books will be the reason why. It may be decades before e-books take off; there are issues with DRM but neither widespread bootlegging problems nor a Steve Jobs to push publishers to open up.
If e-book readers become a success, I think newspapers will be the “killer app” that makes it so. Consider this, Amazon offers a NY Times subscription for $14/month. Assuming a deal similar to Apple’s revenue sharing with the iTunes Store (i.e., $10/month to the Times), the Times could subsidize the Kindle to the public at $99 and a contract for a two year NY Times subscription. Amazon’s maintains it’s revenue and the Times gains a larger subscriber base (and lower distribution costs). Maybe it’s not the NY Times, maybe it’s the Wall Street Journal, or the Washington Post, or maybe Amazon makes this offer to 100 smaller papers around the country that are losing revenue and subscribers.
[…] a somewhat sarcastic essay, Cringley argues that “Yahoo should buy Microsoft”. Apart from an eye-catching headline, there is not much sustance, but Mark repeats his observation […]
As a former Yahoo! developer involved in a fairly large project (Apex), I’ve got to say, Yahoo! has trouble managing its way out of a paper bag. Their operational practices are first-rate, but I would expect a Yahoo!OS to take twice as long to come to market, with little added benefit.
For all the mud-slinging you hear about Microsoft, at least they understand how large projects get delivered. What’s the biggest thing Yahoo! has done? yui? pipes? maps? All those are small compared to writing an OS and working with all the hardware and software vendors that make that OS worthwhile.
Microsoft won’t change. They are too arrogant. Ballmer and Gates respond to criticism by saying, “they’re not billionaires so they’re stupid”. For the same reason, they will not cede control to Yahoo.
Microsoft changes superficially almost constantly. They rearrange deck chairs and think they’ve done something meaningful — when all they’ve really done is lower their own productivity. Sort of like flogging your own arse. This is just managers with no ideas trying to look busy.
MSN is like a seedling Microsoft is hoping will grow up. Wasting $10 billion doesn’t matter to them. They realize competition will eventually kill them. This is venture capitalism at work. Only a small number of ventures need to succeed. This is a good strategy for Microsoft.
[…] could bring about a change at the top. Things haven’t exactly gone swimmingly well for Balmer recently. I’m sure that a different CEO would see things differently, particularly if they came from […]
Why do you put all positive things about yahoo when there are probably a few negatives like it can sometimes can get way to complex and hard to understand and to many choices to choose from.
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